PayPal’s $2.2 billion acquisition of Swedish card terminal startup iZettle makes perfect sense — and Square should be worried (PYPL, SQ)


Jack Dorsey

PayPal is buying Swedish card reading startup iZettle for $2.2 billion.
The deal looks expensive at 20x revenues and double iZettle’s expected IPO valuation.
But iZettle’s in-store offering complements PayPal’s online prowess and gives it a much more powerful sales pitch to take to businesses.
PayPal plans to roll-out iZettle to new international markets and this will likely include the US — bad news for Square, which up until now has only really competed with iZettle in the UK.

LONDON — PayPal surprised many industry observers with a $2.2 billion deal to buy eight-year-old Swedish card terminal company iZettle.

The deal is PayPal’s biggest ever acquisition and comes less than two weeks after iZettle announced plans to go public. The Financial Times reported at the time that iZettle could seek a valuation of $1.1 billion in an IPO, suggesting a huge premium on PayPal’s offer. The sale price is just over 20x iZettle’s 2017 revenues and the company is loss making.

Mizuho Securities analyst Thomas McCrohan said in a note to clients on Friday: “We do not believe this was the acquisition shareholders were anticipating [and] the price paid appears expensive.”

So why did PayPal think iZettle was worth it?

For PayPal, which was spun out of eBay in 2015, the deal makes perfect strategic sense. PayPal is traditionally more dominant in online and mobile payments, while iZettle produces card terminals that allow small businesses and sole traders to take affordable card payments. The deal means PayPal will suddenly gain an in-store presence in 11 new markets: Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain, and Sweden.

As well as complimenting each other geographically, combining the two companies means the new group can offer what’s known as an “omnichannel” solution to retailers.

As shopping increasingly moves online and mobile, traditional retailers want to be able …read more

Source:: Business Insider

      

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